FARR: CRITICS WON'T DISABLE PLANS FOR GROWTH

DETROIT - Auto dealer Mel Farr is stinging from the negative publicity about lawsuits surrounding his use of a device that disables customers' vehicles if payments are missed.

However, he said it will not stop him from building used-car dealerships that target low-income, urban customers with poor credit or no credit history.

At a press conference Sept. 9, Farr, the owner of Mel Farr Automotive Group in Oak Park, Mich., announced that he has secured $36.5 million from an asset-backed private placement deal to help build used-car dealerships and finance subprime customers in Detroit and other cities.

Farr said he is providing a much-needed service for poor customers who have few financing and transportation options.

'It hurts because after 25 years in business I've tried to treat my customers with the kind of respect that I like to get,' said Farr, whose 14-franchise dealership group and Ferndale, Mich., Superstar Used Cars store sell about 700 used cars a month. He said about one-third of those customers are in the subprime category.

'I would like to help working-class men and women drive cars of their own. I can help those turned down everywhere else,' he said.

Farr, 54, said the deal calls for his Triple M Financing Co. to finance subprime customers. To be financed by Triple M, customers must agree to have the electronic device installed on their vehicles, he said. Triple M is a division of Farr's automotive group.

To raise the money, Triple M sold 4,500 auto leases and loans to a group of investors led by Bank of America. Other investors are Ford Motor Credit Co., Bank One, Citibank, Goldman Sachs & Co. and TIAA-CREF, an educators' pension fund. Farr said his goal is eventually to make Triple M a publicly traded company.

STORES TO OPEN IN 2000

Farr said he plans to open at least two used-car stores in Detroit but declined to say how many other stores he plans to open or where they will be. He said the Detroit stores will open in 2000.

Farr's automotive group is the nation's largest black-owned business, according to Black Enterprise magazine, and ranks No. 63 on Automotive News' list of Top 100 Dealer Groups in the United States. Farr's group racked up $596.6 million in sales in 1998.

Farr attracted national media attention after two customers filed lawsuits alleging that the electronic devices, dubbed 'On-time,' abruptly shut off the engines of their vehicles even though they had made their vehicle payments. Also, he was criticized for charging subprime customers interest rates of more than 20 percent.

Customers receive a six-digit code to program the device when they make a payment. If a customer misses a payment, the device prevents the customer from starting the vehicle until the payment is made.

Farr said he reached an out-of-court settlement with one plaintiff on Sept. 2 and the other lawsuit is pending. He would not disclose the terms of the settlement.

400 `ON TIME' CUSTOMERS

Farr said he began installing the device on customers' vehicles three months ago. Currently, 400 of Farr's customers have the devices on their vehicles. Virtually all have made their payments on time. The device sells for $250; Farr said he passes the cost on to his customers but declined to say how much he charges. The devices can be used only once.

Farr said he is an investor in the company that makes the device, Payment Protection Systems in Temecula, Calif. Approximately 40 used-car dealers are using the device at their stores. Farr is the only new-car dealer using it, said Mike Simon, the company's president.

Farr said lawsuits are a part of doing business and business dictates that high-risk customers pay higher interest rates.